Global tactical asset allocation : S&P 500 versus emerging markets

Abstract

Global Tactical Asset Allocation is an active investment approach. It seeks to outperform a financial benchmark and improve the overall return per unit of risk through active management. In the early 1990s GTAA strategies developed with the growth of foreign futures markets and liquidity, as well as increasing evidence of global asset predictability. After a period of negative results for GTAA managers in the late 1990s, weak equity returns have renewed the interest in GTAA from 2000 and on. In the present paper we intend to use GTAA strategies between S&P500 and the MSCI Emerging Markets (MSCI EM) index. Interest in emerging markets has grown considerably from the 1990s and on. These markets have important benefits when used in portfolios internationally diversified in contrast with developed markets which have a higher degree of correlation. Since 1980s, there have been changes in many aspects, for regions such as Asia and Latin America. These changes have turned the emerging markets into better investment opportunities than before and this has resulted in vast capital flows to and from these markets.